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Chapter 17
Activity-Based Costing and Analysis
QUICK STUDIES
Quick Study 17–1 (5 minutes)
Quick Study 17-2 (5 minutes)
Plantwide
Overhead Rate
Direct Labor
Hours per Unit
Overhead Cost
per Unit
Quick Study 17-3 (10 minutes)
a. Plantwide overhead rate = Budgeted overhead cost = $54,400
Budgeted machine hours 640 MH
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 17
Quick Study 17-4 (10 minutes)
1.
2. Overhead cost per unit for each model
Plantwide
Overhead Rate
Direct Labor
Hours per Unit
Overhead
Cost per Unit
Standard ……..
$74 per DLH
5 DLH
$370
$740
Quick Study 17-5 (10 minutes)
Activity
Budgeted
Cost
Budgeted
Activity Usage
Activity Rate
Handling
materials ………….
$625,000
100,000 parts
$6.25 per part
Purchasing ………
Quick Study 17-6 (10 minutes)
1. Plantwide overhead rate (based on direct labor hours)
2. Plantwide overhead rate (based on machine hours)
$1,200,000 + $800,000 = $100 per MH
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Quick Study 17-7 (10 minutes)
Assembly department overhead rate = $1,200,000 = $100 per DLH
12,000 DLH
Quick Study 17-8 (10 minutes)
Allocate overhead to job using departmental rates
Department
Departmental
Overhead Rate*
Hours Used
Overhead
Allocated
Assembly …………
$100 per DLH
80 DLH
$8,000
$50 per MH
Total …………………
$9,500
Quick Study 17-9 (5 minutes)
Cost Driver
Activity
1.
Shipment orders …………………………
Shipment
2.
3.
4.
Shipments received ……………………
Shipment
Quick Study 17–10 (10 minutes)
Compute the overhead activity rate for each activity
Activity
Budgeted
Cost
Budgeted Activity
Usage
Activity Rate
Factory services ………
$87,000
5,800 sq. feet
$15 per sq. ft.
$20 per setup
7,750 units
$12 per unit
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Quick Study 17-11 (10 minutes)
Activity
Budgeted
Cost
Budgeted Activity
Usage
Activity Rate
Purchasing …………..
$135,000
4,500 purchase orders
$30 per PO
5,000 square feet
$6.40 per sq. ft.
Setup …………………..
50 setups
$1,300 per setup
Quick Study 17–12 (10 minutes)
Allocate overhead and compute overhead cost per unit
Activity
Activity Usage
Activity Rate
Allocated Cost
Setup …………………………..
3 setups
$1,000 per setup
$3,000
Materials handling ………..
$50 per requisition
$2 per unit
Total allocated cost ………
Overhead cost per unit ….
Quick Study 17-13 (10 minutes)
a. Compute activity rate on overhead cost for hazardous waste disposal
Activity
Budgeted
Cost
Budgeted
Usage
Activity Rate
Hazardous waste disposal …….
b. Allocate overhead cost to hazardous waste disposal as part of Job 125
based on actual activity usage
Activity
Activity
Usage
Activity
Rate
Allocated
Cost
Hazardous waste disposal ……
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Quick Study 17-14 (10 minutes)
a. Compute activity rate for each activity
Activity
Budgeted
Cost
Budgeted
Activity Usage
Activity Rate
Cutting ………………….
$14,000
2,000 MH
$7 per MH
Assembly ……………..
6,000 DLH
$10 per DLH
b. Allocate overhead to job based on actual activity usage
Activity
Activity Usage
Activity Rate
Allocated Cost
Cutting …………………
20 MH
$7 per MH
$140
Total …………………….
Quick Study 17-15 (5 minutes)
Quick Study 17-16 (5 minutes)
1. Unit level
3. Batch level
5. Batch level
Quick Study 17–17 (10 minutes)
Allocate overhead and compute overhead cost per job
Activity
Activity Usage
Activity Rate
Allocated
Cost
Clerical support……………….
10 employees
$600 per employee
$ 6,000
Building …………………………..
1,500 sq. feet
$50 per sq. foot
75,000
Supplies ………………………….
$80 per job
3,200
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Quick Study 17-18 (10 minutes)
1.
Technical support activity rate = Total budgeted support cost = $250,000
Total budgeted support calls 10,000 calls
= $25 per technical support call
2. Allocate technical support costs to each model
Activity Usage
Activity Rate
Allocated Cost
Quick Study 17-19 (10 minutes)
Customer Profitability Report
Sales ……………………………………………………..
$10,000
Cost of goods sold
Direct materials ……………………………………
$4,100
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EXERCISES
Exercise 17–1 (15 minutes)
1.
Plantwide overhead rate = Total budgeted overhead cost = $72,000
Total budgeted direct labor hours 6,000 DLH
= $12 per direct labor hour
2. Overhead cost per unit using plantwide overhead rate
Model
Plantwide
Overhead Rate
Direct Labor
Hours per Unit
Overhead
Allocated
Standard ………….
3. Product cost per unit using plantwide overhead rate
Cost per Unit
Direct
Materials
Direct
Labor
Overhead
Product Cost
per Unit
Standard ………….
$12
$18
$24
$54
Exercise 17-2 (10 minutes)
1. Budgeted direct labor hours
Model
Number of
Units
Direct Labor
Hours per Unit
Budgeted Direct
Labor Hours
Standard ………….
100
8 DLH per unit
800 DLH
100
12 DLH per unit
Total ………………..
2. Plantwide overhead rate = $420,000 = $210 per DLH
2,000 DLH
3. Overhead cost per unit using plantwide overhead rate
Plantwide
Overhead Rate
Direct Labor
Hours per Unit
Overhead
Allocated
Standard ………….
$210 per DLH
8 DLH
$1,680 per unit
$210 per DLH
1080
Exercise 17-3 (10 minutes)
1.
a. Plantwide overhead rate = $400,000 = $20 per MH
20,000 MH
2.
a. Allocate overhead to Job 121 using machine hours
Plantwide
Overhead Rate
Machine
Hours Used
Overhead
Allocated
b. Allocate overhead to Job 121 using direct labor hours
Plantwide
Overhead Rate
Direct Labor
Hours Used
Overhead
Allocated
Exercise 17-4 (10 minutes)
1.
Plantwide overhead rate = Total budgeted overhead cost = $540,000
Total budgeted surgeries 600 surgeries
2. Allocate overhead using plantwide rate
Plantwide
Overhead Rate
Number of
Surgeries
Allocated
Cost
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Exercise 17-5 (15 minutes)
1. Using the plantwide rate
Per Unit
Direct
Materials
Direct
Labor
Overhead
Product Cost
per Unit
Standard ……………
$30
$20
$15
$65
Deluxe ……………….
35
25
20
80
Per Unit
Standard ……………
Deluxe ……………….
10
2. Using activity-based costing
Per Unit
Direct
Materials
Direct
Labor
Overhead
Product Cost
per Unit
Standard ……………
$30
$20
$ 5
$ 55
Deluxe ……………….
35
25
40
100
Using product cost per unit to compute gross profit per unit.
Per Unit
Standard ……………
Deluxe ……………….
100
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Exercise 17-6 (15 minutes)
1. Budgeted direct labor hours
Assembly Department
Finishing Department
Number
of Units
Hours per
Unit
Total
Hours
Hours per
Unit
Total
Hours
Standard …….
100
7 DLH
700 DLH
1 DLH
100 DLH
2. Departmental overhead rates
3. Overhead cost per unit using departmental rates
Standard
Deluxe
Department
Departmental
Overhead Rate
Hours per
Unit
Overhead
Allocated
Hours per
Unit
Overhead
Allocated
Assembly ……
$150 per DLH
7 DLH
$1,050
9 DLH
$1,350
Exercise 17-7 (15 minutes)
2. Overhead cost per unit using plantwide rate
Plantwide
Overhead Rate
Direct Labor
Hours per Unit
Overhead
Allocation
Part Z …………….
$17.60 per DLH
3 DLH per unit
$52.80 per unit
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Exercise 17-8 (15 minutes)
1. Molding department overhead rate = $240,000 = $15 per MH
16,000 MH
2. Overhead cost per unit using departmental overhead rates
Part Z Part X
Department
Departmental
Overhead Rate
Hours
per Unit
Overhead
Allocated
Hours per
Unit
Overhead
Allocated
Molding …..
$15 per MH
2.0 MH
$30
2.5 MH
$37.50
Trimming ..
4 DLH
Exercise 17-9 (25 minutes)
2. Desk lamp overhead cost per unit using plantwide overhead rate
Plantwide
Overhead Rate
Direct Labor
Hours per Unit*
Overhead
Allocated
3.
Fabricating department overhead rate = $300,000 = $3.75 per MH
80,000 MH
4. Desk lamp overhead cost per unit using departmental overhead rates
Department
Departmental
Overhead Rate
Hours per Unit
Overhead
Allocated
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Exercise 17-10 (20 minutes)
1.
Assembly department overhead rate = $300,000 = $50 per MH
6,000 MH
Overhead cost per unit using departmental overhead rates
Model A Model T
Department
Departmental
Overhead Rate
Hours
per Unit
Overhead
Allocated
Hours per
Unit
Overhead
Allocated
2.
Per Unit
Direct
Materials
Direct
Labor
Overhead
Product Cost
per Unit
Model A ……………
$100
$150
$121
$371
Model T …………….
3.
Per Unit
Selling Price
Product Cost
Gross Profit
Model A ………
$400
$371
$29
Model T ……….
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Exercise 17-11 (35 minutes)
1. Plantwide overhead rate = $30,000 = $12 per DLH
2,500 DLH
Allocate overhead using plantwide rate
Plantwide
Overhead Rate
Direct Labor
Hours per Unit
Overhead
Allocated
Total product cost per unit using plantwide rate
Per Unit
Direct
Materials
Direct
Labor
Overhead
Product Cost
per Unit
2.
a. Compute overhead activity rates
Activity
Budgeted
Cost
Budgeted
Activity Driver
Activity Rate
Machine setup …………
$10,000
20 setups
$500 per setup
Parts handling …………
16,000 parts
$120 per inspection
b. Allocate overhead to Product A and compute overhead cost per unit
Activity
Activity Usage
Activity Rate
Allocated Cost
Machine setup ……………..
8 setups
$500 per setup
$ 4,000
Parts handling ……………..
$120 per inspection
Total allocated cost ………
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Exercise 17-11 (continued)
b. continued
Allocate overhead to Product B and compute overhead cost per unit
Activity
Activity Usage
Activity Rate
Allocated Cost
Machine setup ……………..
12 setups
$500 per setup
$ 6,000
Parts handling ……………..
6,000 parts
$0.50 per part
3,000
$120 per inspection
Total allocated cost ………
c. Product cost per unit using activity-based costing
Per Unit
Direct
Materials
Direct
Labor
Overhead
Product Cost
per Unit
Product A ……………
$20
$40
$13.80
$73.80
Exercise 17-12 (10 minutes)
Cost Driver
Activity
1.
Number of sales orders processed ……………………
Order processing
2.
Direct labor hours to assemble components ……..
Assembly
3.
Number of design changes ……………………………….
4.
Assembly
5.
6.
Number of shipments made ……………………………..
Order processing
Exercise 17-13 (10 minutes)
Activity
Activity Cost Driver
1.
Setup
b. Number of setups
2.
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Exercise 17-14 (15 minutes)
Allocate overhead based on actual activity usage—Job A
Activity
Activity Usage
Activity Rate
Allocated Cost
Materials handling ….
5 requisitions
$50 per requisition
$ 250
8 inspections
$40 per inspection
Total ………………………
Allocate overhead based on actual activity usage—Job B
Activity
Activity Usage
Activity Rate
Allocated Cost
Materials handling ….
3 requisitions
$50 per requisition
$ 150
4 inspections
Total ………………………
Exercise 17-15 (15 minutes)
1. Compute overhead activity rates
Activity
Budgeted
Cost
Budgeted Activity
Usage
Activity Rate
Engineering support …
70 design changes
350 setups
2. Allocate overhead to Pro model and compute overhead per unit
Activity
Activity Usage
Activity Rate
Allocated Cost
Engineering support ……
2 changes
$350 per change
$ 700
140 machine hours
$10 per MH
Total allocated cost ……..
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Exercise 17-16 (20 minutes)
Overhead cost per unit—Stationary bikes
Activity
Activity Usage
Activity Rate
Allocated Cost
Assembly ……………………
300 DLH
$20 per DLH
$6,000
Purchasing ………………….
12 purchase orders
15 inspection
$25 per insp.
Total allocated cost ……..
$6,495
Overhead cost per unit—Rowing machines
Activity
Activity Usage
Activity Rate
Allocated Cost
Assembly ……………………
500 DLH
$20 per DLH
$10,000
Purchasing ………………….
18 purchase orders
$10 per order
Total allocated cost ……..
$10,680
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Exercise 17-17 (25 minutes)
1. Compute overhead activity rates
Activity
Budgeted Cost
Budgeted Activity Usage
Activity Rate
Machining ………
$46.50 per MH
$300 per insp.
Purchasing …….
$300 per order
2. Allocate overhead to Model X and compute overhead cost per unit
Activity
Activity Usage
Activity Rate
Allocated Cost
Machining …………………….
1,800 MH
$46.50 per MH
$ 83,700
Setups …………………………
40 setups
$200 per setup
8,000
Purchasing …………………..
300 orders
$300 per order
Total allocated cost ………
1,724
Allocate overhead to Model Z and compute overhead cost per unit
Activity
Activity Usage
Activity Rate
Allocated Cost
Machining …………………….
4,200 MH
$46.50 per MH
$ 195,300
Setups …………………………
80 setups
$200 per setup
16,000
Purchasing …………………..
150 orders
$300 per order
Total allocated cost ………
3,463
3.
Per Unit
Direct
Materials
Direct
Labor
Overhead
Product Cost
per Unit
Model Z ……………..
4.
Per Unit
Selling Price
Product Cost
Gross Profit
Model X ……………
$420
$425
$(5)
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Exercise 17-18 (10 minutes)
Compute overhead activity rate for each activity
Activity
Budgeted
Cost
Budgeted Activity
Usage
Activity Rate
Handling materials ……
$625,000
100,000 parts
$6.25 per part
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Exercise 17-19 (30 minutes)
1. Compute overhead activity rates
Activity
Budgeted Cost
Budgeted Activity Usage
Activity Rate
Purchasing ……….
$ 5,400
540 purchase orders
$10 per order
250 setups
$184 per setup
2. Allocate overhead to Rounded edge model and compute overhead per unit
Activity
Activity Usage
Activity Rate
Allocated
Cost
Purchasing …………………
109 purchase orders
$10 per order
$ 1,090
Depreciation ……………….
500 machine hours
$28.30 per MH
40 setups
Total allocated cost …….
$22,600
Units produced …………..
Allocate overhead to Squared edge model and compute overhead per unit
Activity
Activity Usage
Activity Rate
Allocated
Cost
Purchasing …………………
431 purchase orders
$10 per order
$ 4,310
210 setups
$184 per setup
Total allocated cost …….
$85,400
Units produced …………..
3.
Per Unit
Direct
Materials*
Direct
Labor**
Overhead
Product Cost
per Unit
Rounded Edge …………..
$3.12
$1.22
$2.26
$ 6.60
Squared Edge…………….
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Exercise 17-20 (15 minutes)
NOTE: Amounts that must be solved for are shaded.
Activity
Activity Usage
Activity Rate
Allocated Cost
Assembly ……………………….
1,200 DLH
$10 per DLH
(c) $12,000
1,000 sq. ft.
$200 per setup
Total allocated cost ………..
Supporting calculations:
(a) $4,000/$200 = 20;
Exercise 17-21 (10 minutes)
Activity
Level
1.
Paying real estate taxes on the factory building …….
Facility
2.
Attaching labels to collars of shirts ……………………….
Unit
3.
Redesigning a bicycle seat ……………………………………
4.
Cleaning the Assembly department ……………………….
5.
Unit
6.
Mixing bread dough in a commercial bakery ………….
Batch
7.
Sampling cookies to determine quality ………………….
Batch
8.
Recycling hazardous waste …………………………………..
Batch
9.
Reducing greenhouse gas emissions ……………………